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It's A Good Thing Kuwait's Pockets Are Deep

March 10, 1991

Cover Story

IT'S A GOOD THING KUWAIT'S POCKETS ARE DEEP

On Aug. 1, 1990, Procter & Gamble Co.'s gulf area general manager, Steve David, finished a trip to Kuwait to check on P&G's operations in the tiny country. The next day, Iraqi troops stormed into the little sheikdom. Now, nearly seven months later, David is back in business. As allied troops drove the Iraqis out in late February, he was scooping up orders from the Kuwaiti government for millions of dollars worth of Tide, Pampers, Fairy Liquid detergent, and other P&G staples. "They've already started trucking it in," says David, who himself is getting set to return to Kuwait from Saudi Arabia.

David's order book is growing fast, but restocking consumer goods is only a minor part of the task of rebuilding Kuwait. Already, the Army Corps of Engineers, working under a $45 million contract from the Kuwaiti government, is signing up contractors for a $1.5 billion crash program to patch together the country's water, power, and telephone systems well enough to serve as many as 400,000 Kuwaitis flooding back home. Once that emergency work is out of the way, the Kuwaitis will move on to a massive rebuilding effort whose cost may soar as high as $100 billion. Previous estimates were closer to $50 billion, but they were made before the Iraqis torched and trashed the emirate before they headed north.

There is a huge amount of work, from rebuilding the gulfside hotels blown up by the Iraqis to reconstructing the mangled remains of Kuwait's oil industry. Ibrahim al-Shaheen, the head of the Kuwaiti task force charged with supervising the reconstruction, finds himself besieged in his hotel suite in Dammam, Saudi Arabia, by company representatives eager for jobs. Already, Kuwait has signed more than $500 million in contracts, 70% of them with U. S. companies such as Bechtel and Motorola. Raytheon just won a $5.7 million deal to supply a control tower, navigation systems, and runway lights for Kuwait City's battle-battered airport. "They want Americans in for the long haul," says Mike Frisby, a Jeddah-based U. S. & Foreign Commercial Service officer.

Kuwait's desire to get the oil dollars rolling in again will translate into a bonanza for U. S. companies specializing in drilling, fighting oil fires, and repairing refineries. San Francisco-based Bechtel Group Inc. has signed a letter of intent with the Kuwaitis for what will likely develop into the lead role in managing the rebuilding of the oil industry. More than 500 wells--over half the country's total--were set ablaze by Iraqi explosive charges. Just putting out the fires and capping the wells could cost $2 billion, according to T. B. O'Brien, president of O'Brien, Goins, Simpson Inc., a Midland (Tex.) oil-field engineering company, which is sending crews to Kuwait to coordinate the oil-field rehab effort for Kuwait Petroleum Corp. "The industry's never seen anything like it," he says.

'A LITTLE SELLING.' The cost of rebuilding will strain even the Kuwaitis' vast wealth, some $90 billion in cash, bonds, and equities. Kuwait has already taken on huge financial commitments (table). Its moneymen are huddling with Western financial advisers on how to raise quick cash. The Kuwait Investment Authority (KIA) and Kuwait Investment Office (KIO), which manage overseas investments, have sold stock in recent days, taking advantage of the worldwide runup in equity prices. "We've had some good opportunities, so we did a little selling, nothing dramatic," says Abdullah al-Gabandi, the newly appointed managing director of the KIA.

The sales may never reach market-jolting size. Al-Gabandi says liquidations of major stakes such as Kuwait's 9.8% in British Petroleum, 25% of German chemical group Hoechst, and 14% of Daimler Benz are "not good for the markets or for us."

Instead, Kuwait is looking to borrow against its blue-chip assets--and possibly against future oil revenues. Gulf-based bankers say the emirate could tap international banks for $5 billion to $10 billion in the coming year. Ultimately, Kuwaiti borrowing could approach $60 billion, according to London banking sources. Some $20 billion could be raised through syndicated loans--an option that the cash-strapped Saudis are taking. The balance would probably have to be some sort of easily tradable paper, say bankers in touch with the Kuwaitis. Already, a number of Western banks--including Citibank, Chemical Bank, and J. P. Morgan--are discussing financial solutions with the Kuwaitis.

Other innovative financial schemes on the table include giving foreign oil companies direct equity stakes in exchange for their help in restoring petrochemical operations. There's also talk of borrowing from the International Monetary Fund and the World Bank.

The Kuwaitis also hope to make Iraq pay up. Abdullah Bishara, the Kuwaiti Secretary General of the Gulf Cooperation Council, has called for payment of $50 billion in damages from Baghdad. "We shall insiston reparations," says Al-Gabandi.

Insisting is one thing. Getting payments from Iraq--a bankrupt, pariah nation with massive reconstruction needs of its own--is quite another. One solution under discussion in the gulf is a United Nations-imposed tariff on future Iraqi oil exports to meet damage claims from individuals and corporations. Yet should Saddam be deposed in a coup, Kuwait may decide to drop its demands. "Assuming Saddam is gone," says Fouad K. Jaffar, former general manager of the KIO and still an informal adviser, "it would be wrong to demand reparations. It doesn't make sense to go for the jugular." Besides, it can't hurt to offer the Iraqi people a $50 billion bounty on Saddam's head.John Rossant and Russell Mitchell in Riyadh and Richard A. Melcher in London, with Mark Ivey in Houston